Why Managed | Modern Portfolio Theory | Diversification | Performance

Why Managed Futures?

Managed futures as an asset class is increasingly being recognized as an important investment alternative that can potentially enhance the returns and lower the overall volatility of a portfolio.

Today, a variety of academic evidence demonstrates the potential benefit of incorporating managed futures to create better balance to a stock and bond portfolio.

Although futures investments involve substantial risk and are not suitable for everyone, the general conclusion is that diversification of non-correlated asset classes, such as the introduction of managed futures to an investment portfolio, can both reduce portfolio risk and enhance overall portfolio performance.

Modern Portfolio Theory

Modern Portfolio Theory (MPT) was introduced by economist Harry Markowitz with his paper "Portfolio Selection" which appeared in the 1952 Journal of Finance.

In 1990, Mr. Markowitz, with William F. Sharpe, and Merton H. Miller, won the Nobel Prize for their contributions to financial economics. Their contributions, in fact, were what started financial economics as a separate field of study.

Economists had long understood the common sense of diversifying a portfolio; the expression "don't put all your eggs in one basket" is probably one of the oldest and most used cliches in history. But Markowitz showed how to measure the risk of various securities and how to combine them in a portfolio to get the maximum return for a given risk.

Far from being cliche, it is simple common sense to include managed futures as a reasonable portion of a well balanced portfolio.

Diversification

The concept of Modern Portfolio Theory was further advanced by the work of Harvard professor Dr. John Lintner in his 1983 study, "The Potential Role of Managed Commodity-Financial Futures Accounts in Portfolios of Stocks and Bonds".

His conclusions stated, "...The combined portfolios of stocks (or stocks and bonds) after including judicious investments in appropriately selected sub-portfolios of investments in managed futures accounts...show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone".

Today, a variety of academic evidence demonstrates the potential benefit of incorporating managed futures into a balanced stock and bond portfolio. The general conclusion is that diversification of non-correlated asset classes can reduce overall portfolio volatility.

Performance

Managed futures investments have the ability to profit in a wide variety of economic environments, and have the potential as a hedge against inflation/deflation. Of course, losses can and do occur.

Managed futures are an attractive stand-alone investment. They can benefit from the diversification of a wide variety of global markets including agricultural products, bonds, currencies, financial instruments, metals, and stock indexes.

Managed futures investors can benefit from the efficiencies of the futures markets. These include: liquidity/rapid execution; minimized transaction costs; and the use of leverage.

The chart below shows the performance of managed futures versus stocks and bonds.

Alternative investments such as managed futures are speculative, involve substantial risk, and are not suitable for all investors.

Past performance is not necessarily indicative of future results.